Can a Company Face Both Civil and Criminal Penalties for False Claims Act Violations?
When a company is accused of defrauding the government under the False Claims Act, it can potentially face both civil and criminal penalties. The False Claims Act is a federal law that imposes liability on any person or company who knowingly submits false claims to the government in order to obtain federal funds. Under the Act, violators may have to pay back up to three times the amount of damages sustained by the government, plus civil penalties of $5,500 to $11,000 per false claim.
In addition to these civil remedies, the False Claims Act contains provisions for criminal enforcement. If a violation is committed with knowledge that the information was false, or with deliberate ignorance or reckless disregard for the truth, the Act deems this to be a federal crime punishable by imprisonment and criminal fines.
So in short, yes – a company can face both monetary civil penalties and criminal prosecution if found to have violated the False Claims Act. Let’s break this down further:
Civil Penalties Under the False Claims Act
The primary purpose of the False Claims Act is to make the government whole again financially when it has been defrauded. The most common civil remedies include:
- Treble Damages – The violator must pay back up to three times the amount of money that the government lost due to the false claims.
- Civil Penalties – Fines of between $5,500 and $11,000 can be imposed for each instance of a false claim. With multiple false claims, these penalties can quickly add up.
In fiscal year 2022, the Department of Justice recovered over $3.6 billion in settlements and judgments related to civil False Claims Act cases. Some recent major civil settlements include:
- AstraZeneca paid $520 million in 2010 to resolve allegations that it promoted drugs for unapproved uses and made false claims to Medicare and Medicaid.
- GlaxoSmithKline paid $3 billion in 2012, which included False Claims Act damages, for unlawfully promoting prescription drugs and failing to report safety data.
- Pfizer paid $2.3 billion in 2009, which included False Claims Act damages, for illegally marketing drugs like Bextra, Geodon, Zyvox and Lyrica.
As these examples show, False Claims Act civil penalties can be very substantial, especially for large healthcare companies. The settlements often include repayment for improper payments from government healthcare programs like Medicare and Medicaid.
Criminal Penalties Under the False Claims Act
In addition to civil fines and damages, the False Claims Act permits criminal prosecution for submitting false claims. Under 18 U.S.C. § 287, the criminal penalties can include:
- Up to 5 years in prison
- Criminal fines up to $250,000 for individuals or $500,000 for organizations
For prosecution under the criminal provisions, the government must prove beyond a reasonable doubt that the defendant acted “knowingly” – meaning they had actual knowledge that the information was false or fraudulent. This is a higher standard than the “reckless disregard” or “deliberate ignorance” standard on the civil side.
According to DOJ data, over 300 individuals were criminally charged in False Claims Act-related cases between 2016 and 2021. Some recent major criminal prosecutions include:
- In 2022, a Mississippi pharmacist was sentenced to over 5 years in prison for a $180 million compounding pharmacy scheme defrauding TRICARE and private insurers.
- In 2019, a CEO was sentenced to 5 years in prison for a $1 billion Medicare fraud scheme involving hospice and home health agencies.
- In 2016, the CEO of Warner Chilcott was charged with felony healthcare fraud for paying kickbacks to physicians to induce prescriptions of their drugs.
As you can see, criminal penalties can include lengthy prison sentences for individuals involved in major fraud schemes against the government. The DOJ often pursues criminal charges in egregious cases or when high-level executives are directly implicated.
How False Claims Act Investigations Unfold
Typically, a False Claims Act investigation starts when an insider (like an employee or former employee) files a whistleblower lawsuit under the Act’s qui tam provisions. This allows private citizens with knowledge of fraud against the government to sue on behalf of the government and receive a portion of any recovery.
The whistleblower’s complaint is initially filed under seal to allow the DOJ time to investigate the allegations. The DOJ can obtain documents and interview witnesses to determine if there is sufficient evidence of false claims. If they find the case has merit, DOJ may elect to intervene and take over the litigation. Over 90% of cases where DOJ intervenes result in settlements or judgments.
Even if DOJ declines to intervene, the whistleblower can pursue the False Claims Act case on their own. When DOJ declines, the complaint is unsealed and the company is served. At this point, settlement negotiations often begin and many companies decide to settle rather than face protracted litigation.
Throughout this process, DOJ prosecutors will be evaluating the evidence to determine if criminal charges are warranted. They will look for evidence of intentional or willful conduct, versus just reckless disregard or negligence. If the prosecutors believe they can prove intent beyond a reasonable doubt, they may pursue criminal False Claims Act charges.
How Companies Can Reduce False Claims Act Risk
Given the huge civil penalties and possibility of criminal prosecution, healthcare companies should take compliance with the False Claims Act very seriously. Some best practices include:
- Implementing robust compliance programs to detect and prevent fraud.
- Conducting regular audits to identify any improper billing or coding issues.
- Providing training to ensure employees understand False Claims Act risks.
- Self-disclosing any potential violations quickly to show cooperation.
- Thoroughly investigating any internal whistleblower complaints.
Having strong compliance helps demonstrate to DOJ that the company is a responsible corporate citizen. It can minimize the chances of whistleblower complaints and may motivate DOJ to decline intervention or agree to more favorable settlement terms.
If a False Claims Act investigation still occurs, companies should engage experienced legal counsel early on. An attorney can help manage the DOJ’s document requests and witness interviews. Counsel can also conduct an internal investigation to determine the extent of any improper conduct. Self-disclosure and cooperation will be viewed favorably and may help avoid criminal charges.
The potential consequences of False Claims Act violations are quite severe. With diligent compliance efforts and guidance from legal counsel, healthcare companies can reduce regulatory risks and avoid the huge penalties that we have seen in recent blockbuster settlements.
References
U.S. Department of Justice
Taxpayers Against Fraud Education Fund
18 U.S.C. § 287
Gibson Dunn
American Bar Association